The Obama administration is talking about a minimum wage hike. The one that has been proposed is a hike to $10.10 an hour, which equates to $21,000 a year. The Federal poverty level for a family of four is $22,320, and for a single person is $10,890. So Obama’s plan will wipe out poverty, right?
Coming on the heels of the massive costs involved with Obamacare, it would cost $12,000 more per year to hire a new worker than it did when Obama took office. Employers are not bottomless pockets full of money. In order to afford these new, higher wages, employers will have to do one of three things: cut costs, raise prices, or a combination of the previous two. Most likely, this will be done as a combination of the previous two. The first effect will be fewer jobs.
The second effect will be pay compression. Let me give an example: In 2004, workers in Florida followed the Federal minimum wage law. The minimum wage in Florida was the same as the Federal wage, $5.15 an hour. In those days, an unskilled position like fry cook at KFC started at about $6.50 an hour. A
semi skilled position, EMT, started at $8 an hour. A
skilled position, Paramedic, started at $14 an hour.
In 2005, the voters of Florida put a law in place that increased the state minimum wage each year. (Here it is – pdf warning) Right now in Florida, an unskilled position like fry cook at KFC starts at about $8 an hour. A semi skilled position, like EMT currently starts about $9 an hour. A skilled position like Paramedic starts at about $13 an hour. So, the minimum wage in Florida increased by $2.64 (a 51% increase) over 7 years, and while the wages of unskilled labor climbed by 23%, the wages of semi-skilled laborers climbed by only 12.5%, and skilled labor actually fell by 7%. Factoring in inflation, and unskilled laborers were the only ones who saw an increase. This is illustrated in this Sentinel article. About three quarters of the way through the article,
Eric Jackson is CEO and president of Total Roofing Services, a
2-year-old Orlando company with about eight employees. Jackson starts
his employees out at $10 an hour, saying he wants to give everyone “a
chance to earn a living wage.”
Jackson said he’s not particularly concerned an increase in the federal
minimum wage would drive up his labor costs. He said he’d tell new
employees, “I’m already paying you a buck above that. Prove yourself,
and you’ll make more.”
So the skilled workers making more than minimum wage would not make more when the minimum wage is raised, and would be making the same as what a KFC fry cook makes, only now all of the businesses who had to give raises to their employees (KFC, grocery stores, gas stations) charge more. Inflation.
Inflation brings us to the second way that employers react to an increase in labor costs: they raise prices. They pay for the wage increases and the increased costs of providing health insurance by raising prices.
One of the biggest complainers about the minimum wage law is waiters and waitresses. They have a “tipped minimum wage” that is only $2.13 an hour. They claim that this places them below the poverty level. I claim bullshit. I know your game. Waiters and waitresses make HUGE amounts of money, they just don’t claim them. Since much of these wages are “under the table,” unreported income, they appear poor, but my daughter works as a server, and she regularly brings home $200 a night in tips after an 8 hour shift.
A meal for two at a moderately priced restaurant like the Outback or Olive Garden runs about $35, meaning a tip of $4 or more. The average server works 3-5 tables. This translates into $12-20 an hour in tips. For a job that requires no licenses or real skill. All you have to do is write down what the customer wants and carry it to the table.